Why is there no Netflix for porn?

Make no mistake: The Extreme Entertainment Network, coming to Roku this summer, doesn’t cater to fans of sky diving or BMX competitions. Instead, it’s trying to push the envelope in a different space: porn. Extreme Entertainment will offer Roku users unlimited viewing of adult content for a flat monthly fee of $14.95. “Picture it like the Netflix of porn,” Extreme owner Rob Black told the trade publication Xbiz a few months ago.

The Netflix of porn: That sounds like a match made in heaven. Netflix is the biggest source of video traffic in the U.S., accounting for as much as 30 percent of all residential broadband traffic. Adult pictures and videos, on the other hand, remain hugely popular online. So why hasn’t anyone tried to offer porn through a Netflix-like subscription model before?

Actually, they have. There are many companies out there claiming to be the Netflix of porn, and the Extreme Entertainment Network (site not safe for work) will compete with at least a handful of subscription offerings on the Roku alone. The big difference is that none of these companies has had the success of Netflix. None has become a household name and disrupted a whole industry in the process. So why hasn’t porn been able to seal the deal with the millions of consumers who subscribe to Netflix?

For porn, it really is hard to compete with free

Will piracy force adult studios to build a “free Netflix” instead of a subscription business?

If you ask people in the adult industry about the inability to replicate Netflix’s success story, the first thing everyone will point to is piracy. “Quite frankly, I’d attribute their limited market penetration (no pun) to the explosive prevalence of free porn via “tube” sites such as PornHub.com,” Xbiz President & Publisher Alec Helmy replied via email when I posed the question to him earlier this month.

That sentiment was echoed by Allison Vivas, president of the Southern California-based porn studio Pink Visual (site not safe for work), but she also put some of the blame on the industry itself: “The biggest issue with launching anything in today’s market is piracy and over-licensed content,” she wrote via email, explaining:

The most popular and most trafficked adult sites online are ones that offer content for free. The content that is available has either been pirated or was licensed at a very low price to these sites, sometimes as low as $10 a scene. Many of these sites now have tablet and mobile versions, so the benefits of sites being “cross platform” no longer really exist.

Her complains about cheaply-licensed content point to a key issue that prevents the adult business from embracing Netflix-like models. Online porn has long been a numbers game: Sites attract huge numbers of users with freebies, hoping that some of them stick around and subscribe for $30-$40 a month.

Adult YouTube-like sites with user-generated as well as pirated content were initially seen as a huge threat, but are increasingly becoming part of that very same strategy, offering lots of freebies to attract millions of viewers. And in that climate, it’s tough to start asking people to pay up. That’s why Helmy mused: “In my opinion, we’re more likely to see a “free Netflix” (with premium content access or up-sell, of course) than a for-pay-only.”

Smart TVs don’t want to be smut TVs

FyreTV’s strategy to become the Netflix of porn: Be on as many devices as possible. But the site’s subscription packages don’t look much like Netflix at all.

A second problem has to do with technology: Netflix became a success in the online video market in part because of its aggressive device strategy. The company now sees more than 80 percent of its video traffic on devices other than the PC, and it is available on more than 800 different devices. That’s tough to replicate for adult content platforms, not only because of fewer development resources. Smart TV manufacturers have long resisted efforts to bring adult apps to their platforms for the fear of alienating consumers with too-explicit content. Even Roku only allows adult content through so-called private channels. That means that these services won’t be listed in Roku’s channel store, which takes away a huge promotional opportunity.

That’s why FyreTV (site not safe for work), another contender in the race to become the Netflix of porn, started selling its own set-top box in 2008. Of course, not many people were willing to put a separate porn box on display in the living room, and the initial purchase price also prevented wider adoption. “We had a $89 barrier,” Marco Torres, who does business development for FyreTV, told me during a phone conversation a few days ago. That’s why FyreTV is now focusing most of its efforts on other devices. The service is available on Roku as well as the Boxee Box, one of the few connected devices with a dedicated adult content section. Next up are a number of Smart TVs as well as set-top-box platforms that are being used by pay TV operators. “We are in the process of developing for everything that we get our hands on,” Torres told me.

Whether consumers will get to see these efforts is a different question. Smart TV manufacturers are slowly easing their restrictions in Europe, where French pornographer Marc Dorcel launched an industry-first adult app on Philipps TVs this spring, and FyreTV will launch on a number of devices soon. But CE makers are still too afraid to allow the same content in the U.S. “It’s a little hard,” admitted Torres. “Not all of them are opening the doors to adult yet.” The irony is, of course, that cable companies have long sold Triple-X hardcore to consumers willing to pay, which is why Torres has high hopes for cord cutting. Once people disconnect and get everything over-the-top, Smart TV platforms essentially become the new cable companies, he said — and porn will be part of the package.

No one has Netflix’s coffers

There’s one more business reason behind the absence of a real Netflix for porn. Netflix generated billions in revenue with renting DVDs, and was able to use a huge chunk of that money for content licensing. Most online adult companies don’t have quite as much to spend. That’s why FyreTV and others structure their licensing agreements around revenue sharing instead of flat-out buying huge libraries.

Most adult studios, on the other hand, run their own subscription businesses, charging their customers substantially more that the Netflix-typical $8 a month for access to a limited catalog of content. Large, unlimited catalogs could be seen as competition in this environment, and no one has enough money to front that would convince studios otherwise. That’s why FyreTV resorts to selling studio-specific subscription packages instead of one huge, Netflix-like flat-free catalog. “I don’t think anybody would be able to line up all of the studios,” said Torres.

Also, it’s kinda kinky

Wantedlist closely followed Netflix’s example. But most customers still use the company’s legacy DVD business. A Netflix-like transition to streaming hasn’t happened.

There’s one more reason for the absence of a Netflix of porn that shouldn’t be underestimated: that whole porn part. Netflix and others in the mainstream video space owe a huge part of their success to word-of-mouth, with people recommending the services to friends and Facebook followers. You’re much less likely to do that with adult content, argued Wantedlist (site not safe for work) co-founder Danny Ting when I talked to him a few days ago. “It’s a very private matter for most people,” he said.

Wantedlist started in the late 1990s by taking lots of clues from Netflix. The service initially just rented DVDs per mail to its customers and then eventually expanded to online streaming as well. It now offers an online-only all-you-can-eat subscription that largely consists of catalog titles, and also still maintains its DVD business. Sounds like Netflix all over again — except that the rapid transition to online subscriptions never happened. “We thought we would be full-on streaming,” remembered Ting. But to this day, DVDs are the biggest part of Wantedlist’s business. “We didn’t become as big as we wanted to,” he admitted.

Ting also sees piracy as part of the problem, but still thinks the real issue is privacy. “People don’t really share that consumption with anyone else,” he explained. And as companies like Hulu and Spotify are flocking to Facebook to share their members media consumption, the adult Netflix wanna-be’s are increasingly left behind. Said Ting: “We are not part of the viral marketing revolution.”